Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Online Retailers Open Physical Stores

By Daniel B. Kline - Dec 27, 2017 at 9:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While some traditional chains are closing brick-and-mortar stores, formerly pure-digital retailers are opening them. What gives?

The internet will kill brick-and-mortar retail. That's a prophecy that has proven at least partly true in 2017 as thousands of chains have closed stores, while others shut down for good, and quite a few remain at risk in 2018.

Retail has become increasingly digital, but most shopping still takes place in stores and digital retailers have discovered that, in many cases, there's a benefit to having a brick-and-mortar presence.

In some cases, that can be simply to facilitate returns. That's why Amazon ( AMZN -1.38% ) has a deal in place with Kohl's. The chain allows customers to drop off items they want sent back to the digital retailer.

Amazon has also shown through its purchase of Whole Foods that having a physical presence can help expedite delivery. The roughly 400 grocery stores add to the digital leader's warehouse network, giving it more points to stage orders from.

Most digital retailers, however, have much smaller ambitions. For companies specializing in a more narrow range of products, opening brick-and-mortar locations may make sense simply for the data it can gain from in-person customer interactions.

The interior of a Warby Parker store.

Warby Parker has been opening stores. Image source: Warby Parker. 

What is "brick mining?"

While it's not yet a mainstream term, "brick mining" is the idea that an online retailer can learn about its customers from having a limited amount of physical stores. The term was used by sportswear subscription retailer Fabletic's retail vice president, Ron Harries, to explain why his once pure-digital employer has begun opening stores.

"When you take the data that you collect from that customer in a retail location, you can get to know your members and guests much differently than you could online only," he told Marketplace.

There's a practical reason for customers to visit a physical Fabletics location that should help the company's digital sales going forward. When a customer finds the right fit -- something it's not easy to do online -- she can then order again (online) without needing to try items on. Physical locations also act as advertising and Harries told Marketplace that Fabletics has seen an increase in online shopping from people located near the stores.

Fabletics is not alone. Amazon has been opening bookstores to show off not just books, but also its Echo and Kindle product lines. It has also opened a stand-alone location for its Zappos shoe line.

In addition, Warby Parker, once an online-only brand, has launched a small network of shops. Bonobos, another formerly pure-digital play, has opened physical stores that it calls "Guideshops." These locations work a lot like the Fabletics stores, allowing the Wal-Mart-owned chain to help its menswear customers with fit while also gathering data on them.

It's hard to know the balance

This is sort of unknown territory for digital retailers, where they will each have to explore the cost versus the benefit of having physical locations.

It's important to note that these stores are generally on the small side. Some have limited inventory for sale, but many serve as extensions of the digital ordering process. Consumers may not leave the store with their purchase, but they leave knowing it will fit or work for them when it arrives.

In exchange, the company gets added data it may not have been able to obtain in a digital sale. That gives it a stronger connection with its customer and knowledge it can extrapolate across other users who fit the same profile.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,389.79 (-1.38%) $-47.57

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.